Question 1

A contingent liability:
A)Is always of a specific amount
B)Is a potential obligation that depends on a future event arising out of a past transaction or event
C)Is an obligation not requiring future payment
D)Is an obligation arising from the purchase of goods or services on credit
E)Is an obligation arising from a future event

Accepted Answer

A contingent liability is an obligation that is dependent on a future event, and may or may not require future payment. It arises from a past transaction or event but the amount and timing of payment is uncertain.

Question 2

Uncertainties such as natural disasters:
A)Are not contingent liabilities because they are future events not arising out of past transactions or events
B)Are contingent liabilities because they are future events arising from past transactions or events
C)Should be disclosed because of their usefulness to financial statements
D)Are estimated liabilities because the amounts are uncertain
E)Arise out of transactions such as debt guarantees

Accepted Answer

Natural disasters are not contingent liabilities because they are future events that do not arise from past transactions or events. Contingent liabilities must be based on past events.

Question 3

Times interest earned is calculated by:
A)Multiplying interest expense times income
B)Dividing interest expense by income before interest expense
C)Dividing income before interest expense and any income tax by interest expense
D)Dividing interest and income tax expense by income before interest and income tax expense
E)Dividing income before interest expense by interest expense and income taxes

Accepted Answer

Times interest earned is calculated by dividing income before interest expense and any income tax by interest expense. This ratio measures a company's ability to make interest payments on its debt. A higher ratio indicates that the company is more capable of meeting its interest obligations.

Question 4

The times interest earned ratio reflects:
A)A company's ability to pay its operating expenses on time
B)A company's ability to pay interest even if sales decline
C)A company's profitability
D)The relation between income and debt
E)The relation between assets and liabilities

Accepted Answer

The times interest earned ratio is a measure of a company's ability to pay interest expenses even if sales decline. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. A higher ratio indicates that a company is more capable of covering its interest expenses with its earnings.

Question 5

Tree Frog Company is organized as a LLC and does not pay income taxes.The company has fixed interest expense of $5,750,Sales of $253,000 and variable expenses of $189,750.What is the company's times interest earned ratio?
A)44
B)33
C)11
D)10
E)$63,250

Accepted Answer

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Question 6

Amounts received in advance from customers for future products or services:
A)Are revenues
B)Increase income
C)Are liabilities
D)Are not allowed under GAAP
E)Require an outlay of cash in the future

Accepted Answer

Amounts received in advance from customers for future products or services are considered liabilities because the company has not yet provided the products or services and still owes them to the customer. These liabilities are recorded on the balance sheet as unearned revenue until the products or services are provided, at which point they become earned revenue.

Question 7

Gross pay is:
A)Take-home pay
B)Total compensation earned by an employee before any deductions
C)Salaries after taxes are deducted
D)Deductions withheld by an employer
E)The amount of the paycheck

Accepted Answer

Gross pay refers to the total compensation earned by an employee before any deductions are made, such as taxes, insurance, and retirement contributions. It is the base amount from which all other calculations for net pay and taxes are made.

Question 8

Unearned revenue is initially recognized with a:
A)Credit to unearned revenue
B)Credit to revenue
C)Debit to revenue payable
D)Debit to revenue
E)Debit to unearned revenue

Accepted Answer

The answer of Unearned revenue is initially recognized with a:
A)Credit...

Question 9

Most employees and employers are required to pay:
A)Local payroll taxes
B)State payroll taxes
C)Federal payroll taxes
D)Both B and C only
E)Local,state and federal payroll taxes

Accepted Answer

Most employees and employers are required to pay local, state, and federal payroll taxes.

Question 10

On December 1,Martin Company signed a $5,000 3-month 6% note payable,with the principle plus interest due on March 1 of the following year.What amount of interest expense is accrued at December 31 on the note?
A)$0
B)$25
C)$50
D)$75
E)$300

Accepted Answer

$5,000 x 0.06 x 1/12 = $25

Question 11

The difference between the amount received from issuing a note payable and the amount repaid is referred to as:
A)Interest
B)Principle
C)Face Value
D)Cash
E)Accounts Payable

Accepted Answer

The difference between the amount received from issuing a note payable (face value) and the amount repaid includes the amount of interest paid to the lender. Therefore, the correct answer is option A, Interest.

Question 12

A short-term note payable:
A)Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle,whichever is longer
B)Is a contingent liability
C)Is an estimated liability
D)Is not a liability until the due date
E)Cannot be used to extend the payment period for an account payable

Accepted Answer

A short-term note payable is a liability that represents a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer. It is a form of borrowing and is typically used to finance a company's short-term needs such as inventory or working capital.

Question 13

The times interest earned computation is:
A)(Net income + Interest expense + Income taxes)/Interest expense
B)(Net income + Interest expense - Income taxes)/Interest expense
C)(Net income - Interest expense - Income taxes)/Interest expense
D)(Net income - Interest expense + Income taxes)/Interest expense
E)Interest expense/(Net income + Interest expense + Income taxes expense)

Accepted Answer

The times interest earned computation measures a company's ability to meet interest payments on its debts. It is calculated by dividing the sum of a company's net income, interest expense, and income taxes by its interest expense. Choice A accurately reflects this calculation.

Question 14

Which of the following is a true statement?
A)GAAP and IFRS treat accounts payable,sales taxes payable and unearned revenues in a similar manner as estimated liabilities
B)GAAP treats accounts payable,sales taxes payable and unearned revenues as estimated liabilities while IFRS treats them as contingent liabilities.
C)IFRS treats accounts payable,sales taxes payable and unearned revenues as estimated liabilities while GAAP treats them as contingent liabilities.
D)GAAP and IFRS treat accounts payable,sales taxes payable and unearned revenues in a similar manner as determinable liabilities
E)None of the statements above are true statements

Accepted Answer

Both GAAP and IFRS classify accounts payable, sales taxes payable, and unearned revenues as determinable liabilities, not estimated or contingent liabilities.

Question 15

In the accounting records of a defendant,lawsuits:
A)Are estimated liabilities
B)Should always be recorded
C)Should always be disclosed
D)Should be recorded if payment for damages is probable and the amount can be reasonably estimated
E)Should never be recorded

Accepted Answer

Lawsuits should be recorded as a liability if it is probable that the defendant will be required to pay damages and if the amount can be reasonably estimated. This can be determined by the legal counsel representing the defendant. If both of these conditions are met, the estimated liability should be recorded in the accounting records. If these conditions are not met, lawsuits should not be recorded. It is not always necessary to disclose the existence of lawsuits in the financial statements, but if the outcome of the lawsuit could have a material impact on the financial position of the company, it should be disclosed in the footnotes.

Question 16

A company had a fixed interest expense of $6,000,its income before interest expense and any income taxes was $18,000 and its net income was $8,400.The company's times interest earned ratio is equals to
A)0.33
B)0.71
C)1.40
D)3.00
E)12,000

Accepted Answer

$18,000/$6,000 = 3.0 times

Question 17

Miller Company has a times interest earned ratio of 5.Sales and variable expenses were $57,290 and $40,105 respectively.Compute the company's fixed interest expense.
A)$17,185
B)$3,437
C)$11,458
D)$8,021
E)$85,925

Accepted Answer

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Question 18

If the times interest ratio:
A)Increases,then risk increases
B)Increases,then risk decreases
C)Is greater than 1.5,then the company is in default
D)Is less than 1.5,the company is carrying too little debt
E)Is greater than 1.5,the company is likely carrying too much debt

Accepted Answer

The answer of If the times interest ratio:
A)Increases,then risk increases
B)Increases,then...

Question 19

Sales taxes payable:
A)Is an estimated liability
B)Is a contingent liability
C)Is a current liability for retailers
D)Is a business expense
E)Is a long-term liability

Accepted Answer

Sales taxes payable is a current liability for retailers. It represents the amount of sales tax collected from customers but not yet remitted to the government. It is a liability because retailers have an obligation to remit these tax amounts to the government on behalf of their customers.

Question 20

Advance ticket sales totaling $6,000,000 cash would be recognized as follows:
A)Debit Sales,credit Unearned Revenue
B)Debit Unearned Revenue,credit Sales
C)Debit Cash,credit Unearned Revenue
D)Debit Unearned Revenue,credit Cash
E)Debit Cash,credit Revenue Payable

Accepted Answer

The answer of Advance ticket sales totaling $6,000,000 cash would...

Quiz 9: Reporting and Analyzing Current Liabilities

A contingent liability:

Uncertainties such as natural disasters:

Times interest earned is calculated by:

The times interest earned ratio reflects:

Tree Frog Company is organized as a LLC and does not pay income taxes.The company has fixed interest expense of $5,750,Sales of $253,000 and variable expenses of $189,750.What is the company's times interest earned ratio?

Amounts received in advance from customers for future products or services:

Gross pay is:

Unearned revenue is initially recognized with a:

Most employees and employers are required to pay:

On December 1,Martin Company signed a $5,000 3-month 6% note payable,with the principle plus interest due on March 1 of the following year.What amount of interest expense is accrued at December 31 on the note?

The difference between the amount received from issuing a note payable and the amount repaid is referred to as:

A short-term note payable:

The times interest earned computation is:

Which of the following is a true statement?

In the accounting records of a defendant,lawsuits:

A company had a fixed interest expense of $6,000,its income before interest expense and any income taxes was $18,000 and its net income was $8,400.The company's times interest earned ratio is equals to

Miller Company has a times interest earned ratio of 5.Sales and variable expenses were $57,290 and $40,105 respectively.Compute the company's fixed interest expense.

If the times interest ratio:

Sales taxes payable:

Advance ticket sales totaling $6,000,000 cash would be recognized as follows: